Fix Health Care Policy

Rigging the System with New Regulation

As a follow-up to earlier posts on the so-called consumer protections included  in the bills backed by Congressional leadership, a state level survey by America’s Health Insurance Plans (AHIP) offers additional analysis of the effects of regulation on health insurance premiums.

The AHIP report shows that the states with the three highest premium averages all require community rating and guaranteed issue.  Of course, a range of other factors (such as demographics) affect the price of insurance, but these regulations do play a significant role in driving up costs.  As the report explains:

“…states with guaranteed issue and community rating rules tend to have higher than average premiums. Knowing that they could purchase coverage at any time, younger and healthier people may not do so in sufficient numbers to balance insurance pools.  When this happens, premiums reflect the higher average costs of older and less healthy people, and people with low- or moderate-incomes may not be able to afford coverage.”

In a new article in The American, Joseph Antos of the American Enterprise Institute and I argue that if Congress were to “up the regulatory ante” on private health plans by enacting such restrictive regulations nationwide it would stifle competition, leaving a new public plan with unfair advantages:
“The uniform set of federal rules outlined in the [House health care] bill raises the cost of insurance and dampens, rather than enhances, the scope of competition in the market. Worse yet, what competition is left between the public plan and private insurers would not be fair.”

We go on to write:

“By the very nature of its ‘public’ status, that plan would have serious advantages over its private competitors. Because it would be backed by the federal government, the public plan would be viewed by many consumers as safe and secure. Individuals could trust the public plan to ‘be there for them when it counts.’ The plan would benefit from billions in federal subsidies not offered to private plans. At first, there would be federal ‘seed’ money to force the public plan into established insurance markets. Later, Congress could be counted on to prop up the public plan if it faltered. The plan would be too important to fail regardless of the debt it accrued, since failure would mean millions of people losing coverage from a highly visible government program.”

The Obama administration and Democrats are selling their health reforms as “consumer protections.”  But these “protections” are actually new rules that would limit consumer choice, reduce private sector competition, and inflate insurance costs.  And, making matters worse, at the end of the day, the rules would be rigged to favor the public plan.

Tags: consumer protection, House health care bill, public plan, regulation

‘Consumer Protections’ Means More Mandates on the Way

Democrats have promised Americans an extensive health insurance benefit package—one as good as that held by members of Congress. They also want to move much of the regulatory power over health insurance markets from the state level, where it currently lies, to the national level.

To see what this would mean in practice, let’s turn to the states. Among the regulations states enact are benefit mandates, which outline the specific treatments that must be covered in all plans offered in a state.

As researchers at the Council for Affordable Health Insurance write:

“While mandates make health insurance more comprehensive, they also make it more expensive because mandates require insurers to pay for care consumers previously funded out of their own pockets. We estimate that mandated benefits currently increase the cost of basic health coverage from a little less than 20% to perhaps 50%…”

The “consumer protection” of a rich benefit package mandated nationwide would actually drive up insurance costs. Moreover, our political system creates pressures for politicians to enact mandates:

“Elected representatives find it difficult to oppose any legislation that promises enhanced care to potentially motivated voters. The sponsors of mandates know this fact of political life…By the late 1960s, state legislatures had passed only a handful of mandated benefits; today, the Council for Affordable Health Insurance (CAHI) has identified 2,133 mandated benefits and providers. And more are on their way.”

It is likely that the federal one-size-fits all benefit package, as proposed in the bills moving through Congress, will end up resembling a state like Massachusetts (with 52 total mandates) rather than one like Utah (with only 23 mandates). The Democrats’ reforms would mean more mandates and higher—not lower—health insurance costs.

Tags: consumer protection, employer mandates, Massachusetts, Utah